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Articles 143, 283 and 363 of Regulation (EU) No 575/2013 (CRR) require the European Central Bank (ECB) to grant permission to use internal models for credit risk, counterparty credit risk and market risk where the requirements set out in the corresponding chapters of the CRR are met by the institutions concerned. Based on the current applicable European Union (EU) and national law, the ECB guide to internal models provides transparency on how the ECB understands those rules and how it intends to apply them when assessing whether institutions meet these requirements.
The guide is also intended as a document for the internal use of the different supervisory teams, with the aim of ensuring a common and consistent approach to matters related to internal models. When applying the relevant regulatory framework in specific cases, the ECB will take into due consideration the particular circumstances of the institution concerned.
This guide should not be construed as going beyond the current existing applicable EU and national law and therefore is not intended to replace, overrule or affect applicable EU and national law.
In accordance with the requirements set out in the CRR, the European Banking Authority (EBA) has drafted regulatory technical standards (RTS). These include the Final Draft RTS on assessment methodology for the Internal Ratings-based (IRB) Approach, the Final Draft RTS on the specification of the nature, severity and duration of an economic downturn and the Final Draft RTS on the specification of the assessment methodology for competent authorities regarding compliance of an institution with the requirement to use internal models for market risk and assessment of significant share. These specify how competent authorities should assess compliance with the regulatory framework
defined in the CRR. The Final Draft RTS have not yet been adopted by the European Commission, but those Final Draft RTS are referred to in the guide as good practice for interpretative purposes. Some parts of this guide may require revision once the European Commission has adopted the RTS by means of a Delegated Regulation. The ECB will amend or delete those parts of the guide when the RTS enter into force.